Investors hail full inquiry into Equitable

Ministers yesterday cleared the way for a 'full investigation into Equitable Life' after agreeing to extend the powers of the Parliamentary Ombudsman to include the Government Actuary's Department.

The Gad was strongly criticised by Lord Penrose in his report on the society's near collapse. Ombudsman Ann Abraham, in her submission to Parliament this week, said its actions as the Government's chief insurance adviser were 'key to an assessment of whether maladministration by the prudential regulator caused an unremedied injustice to the complainants'.

More than a million former and existing Equitable Life policyholders are pinning their hopes of Government compensation on her findings.

The change to her power will require an amendment to existing legislation that Douglas Alexander, minister for the Cabinet Office, said "will be made as soon as possible" after the summer break. Mr Alexander told the House of Commons he had agreed to extend the ombudsman's jurisdiction "to include the role of the Government Actuary's Department in relation to the prudential regulation of insurers prior to this function being transferred to the Financial Services Authority in April 2002".

Ms Abraham, who agreed to re-open her inquiry into the Government's supervision of the failed insurer earlier this week, had threatened to "revisit" the decision if the Government refused to extend her remit. Currently, the Parliamentary Ombudsman can only consider the actions of Government regulators at the Department of Trade & Industry and the Treasury.

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Charles Thomson, chief executive of Equitable Life, said: "Policyholders will be delighted with this news. The Penrose report was peppered with criticism of Gad and it is essential that their role in the whole affair is investigated fully."

Equitable was plunged into difficulties after losing a House of Lords ruling four years ago over the rights of its guaranteed annuity rate policyholders, leaving it with a £1.5billion liability and forcing it to close to new business and slash the value of policies.

Andrew Tyrie, shadow financial secretary to the Treasury, accused the Government of making "a humiliating U-turn" over the Gad amendment.

He said: "As soon as the Penrose report made clear the degree of regulatory failure on Equitable Life, in particular the Gad, I called on the Government to add the Gad to the ombudsman's jurisdiction. Ruth Kelly refused point blank to do so, erroneously claiming that it could be retrospective. She subsequently retracted this in a letter to me. Now the climbdown is complete."

Despite months of lobbying by opposition MPs and policyholder action groups for a fresh inquiry, Ms Kelly, financial secretary to the Treasury, has repeatedly argued against it.

In a letter to the ombudsman published this week, she said: "Even if the Government were to agree to the extension of your jurisdiction to cover Gad it would remain the case that many of the most important parties would remain outside it." She continued: ". . . it is not clear to us how an investigation which looked only at the prudential regulators (and possibly Gad) could properly reach definitive and generally defensible conclusions."

However, Paul Weir of the Equitable Life Contributors Action Group, said: "We're delighted and hope this paves the way for compensation for the victims of this scandal."